What Are European Sustainability Reporting Standards (ESRS)?

Approximately 42,000 companies, representing 90% of the initially estimated scope, will no longer be subject to the EU's Corporate Sustainability Reporting Directive (CSRD) due to recent legislative changes, according to Commonwealth Climate Law. The drastic reduction fundamentally alters the directive's reach. It shifts the burden of comprehensive sustainability disclosures away from a vast segment of the European business community, particularly small and medium-sized enterprises (SMEs) initially slated for mandatory reporting.

The EU's Corporate Sustainability Reporting Directive was designed to broadly mandate sustainability reporting. However, subsequent simplification packages have drastically narrowed its scope and delayed its implementation. The tension between an ambitious regulatory vision and economic pragmatism has redefined the directive's application.

While the CSRD still represents a significant regulatory shift for large corporations, its overall impact on the broader European business landscape will be considerably less pervasive than initially anticipated. Compliance efforts will now concentrate on fewer, larger entities.

What is the CSRD and ESRS?

The Corporate Sustainability Reporting Directive (CSRD) is an EU regulation requiring companies to report on their environmental, social, and governance (ESG) performance. Companies subject to the CSRD must report according to European Sustainability Reporting Standards (ESRS), which provide a standardized framework for disclosures, according to the European Commission. The CSRD officially entered into force in January, according to Enterprise Gov Ie. The dual structure of directive and standards aims to establish a mandatory system for companies to disclose their environmental and social impact. The goal is to enhance corporate transparency and drive changes in business behavior across the EU.

Initial Rollout and Early Signs of Change

The Corporate Sustainability Reporting Directive (CSRD) applied to First Wave companies starting in January 2024, according to Commonwealth Climate Law. This group includes approximately 11,000 EU-listed companies, banks, and insurance companies with over 500 employees. These entities applied the new rules for the 2024 financial year, with reports published in 2025, states the European Commission. The initial phase established the directive's immediate impact on major players. However, even as initial compliance began, a legislative package proposed in February 2025 aimed to apply the CSRD only to the largest companies, specifically those with more than 1000 employees. The legislative package signaled an early intent to narrow the directive's reach.